Going for investment can be quite daunting. Where do you start? What do you need? Luckily, we asked some experts in the field to help us navigate your way to successful seed funding.
Do you need investment?
The very first question you need to ask yourself is, do you really need investment? It might sound obvious, but in fact it is only a small percentage of companies that really are in the position to scale to the potential where investment is necessary and a return can be made on it.
"Some 90 per cent of companies shouldn't take investment – they'll get along on their own revenue and grow like all traditional companies will. The only reason you take on investment is you see a bigger place you'll get to quicker with other people's money as a fuel or as an accelerant," advises Paul Hayes, founder and chief executive of Beachhut PR.
The point is echoed by ChannelSight’s chief executive, John Beckett, who has been in the market many times himself. “For example, a business where you develop an innovation, a piece of software or a piece of technology you need to get out to market quickly or it’s going to be copied or the opportunity is going to go away or it’s going to be less lucrative by delaying.”
Are you investment-ready?
This is more about you as a person than your company: can you handle bringing investment upon yourself? It’s not for everyone and you need to take a good look at yourself, because once you are in, you are in.
“It’s the scariest day, the day after you get investment – you’ve got to prove it now. There is a time bomb ticking down the second you take investment, to the next investment or to the exit or to the whatever,” says Hayes. “Now if you like that and you almost need that artificial pressure, you just want to be sure.”
What stage is your business at for your particular sector?
If you are unsure at what level you feel investors need to come on board, it doesn't hurt to do a full assessment of where your company is at in its life cycle. Paul Maguire, head of innovation at Hothouse/TU Dublin says: "We recommend to people, when they come in to talk to us, to tell us what your innovation is about, and we can give you a non-confidential assessment of where you are using a number of different tools called Technology Readiness Level. It gives you an indication as to where your technology is and at what stage do investors really come on board. For the medical devices, they are inclined to maybe come on a little bit earlier, maybe during the trial phases, whereas if you have a software product they come on a little bit later, maybe when you have your first customers on board – so there is that difference in terms of what sector you are operating in."
Do you know your market?
“The one piece of advice I would give to any start-up is become an expert on your sector. It’s a given you are an expert on your company or your product – that’s table stakes – the real thing is, can you convince people not only that you know what you sector looks like but what it’s going to look like? It’s almost like where is the ball going to drop in 18 months’ time?” says Hayes.
You should also know who your customers are and what their feedback is. You need at least one person who says they will part with money for your product.
What makes you stand out in the crowd?
"You need to show that you have something different, something unique – either your product or your business model – there's something different that shows you can grow fast. Why are you going to succeed, what are you going to displace or replace in the market? The successful entrepreneurs are always very close to their market," advises Debbie Rennick, General Partner at ACT Venture Capital.
The competitive landscape – do you know your competitors?
“If you can’t talk about the competition, you’re certainly never going to find an investor, so you must also understand there is always competition for your budget,” says Beckett. “There is always competition for the budget you are chasing, even if you don’t realise it – it’s not necessarily a direct competitor.”
For the money that you are chasing, who else is looking for that? There are direct competitors and you have to understand intimately. We have what we call our war room, where we have oceans of information about every competitor.
Are you ready for the pitch?
Your first conversation with an investor doesn’t have to involve asking for money. Just opening the channels of communication can go a long way down the road when you are looking to close out your seed round.
“It’s never too early to go and see an investor,” says Hayes. “The earlier they see you and you can map out what it is you are trying to do and you go back to them when you validate two or three of the things; getting the first customer or getting the first partnership or getting profile within the sector or showing that you are making waves. Unless they know about you previously then that just sounds like the first thing you did, when actually you are fulfilling what you said you would. Go to investor meet-ups, go talk to angels, talk to VCs – talk to their seed funds as early as you can and be collaborative. There is no NDA that’s worth a start-up signing; it’s very rare you are going to have technology that is worth hiding at that stage.”
What are investors looking for?
“The number one thing for us as investors is growth and market. The thesis behind investing is growth – it’s always got to grow very fast and beyond your normal typical growth rates in more mature businesses because you are having to provide exceptional returns,” says Rennick.
“Be clear about what you want the money for. You are raising an amount of money – what are you going to do with it, because remember investors think in tranches, they think in milestones. Think about how long is this going to last: ‘I need this company to be funded for at least a year to 18 months and what we want to see is that there is going to be value growth.’
“Always give the context to the story of why you’ve come up with this idea, because that’s telling the investor where it’s come from, whether you’ve specific domain knowledge, whether you’ve unique insight that is actually interesting, tell the story and your background because that actually gives it perspective.
“Ask yourself, if you were investing money into something, what would you want to know?”
